Albania's economy forecast to grow by 3 percent in 2016

Albania's economy remains on a positive development trajectory and will grow by 3 percent in 2016, Albania's central bank said Thursday.

In the medium term, Albania's economic growth should improve and inflation should gradually return to target, although risks and uncertainties exist and the external environment appears to have deteriorated, the Bank of Albania said.

"In response to such developments ... the Supervisory Council decided to lower the key interest rate by 0.25 percentage points," said Gent Sejko, governor of the central bank.

Lowering the key interest rate would provide a monetary stimulus to the economy, Sejko said.

"Through the lowering of interest rates in the financial market, our monetary policy seeks to support the further growth of credit, consumption and private investments," he said. "This move signals also the will of the Bank of Albania to take all the necessary measures for maintaining price stability, in accordance with its inflation target."

The bank governor also said that in the first quarter of the year, inflation averaged 0.7 percent, as it recorded a sharp decline over the first two months due to supply-side shocks, including the slump in prices of food items, oil, and technical factors.

These shocks originate, to a large extent, in the global markets and are reflected in a rapid drop of inflation across all the countries of the region, according to the Albanian Daily News.

At the end of 2016, the level of inflation is expected to be around 1.9 percent, down from the 2.3 percent projection in the previous Monetary Policy Quarterly Report, the daily said.

Sejko noted that the Albanian economy grew by 2.2 percent in the fourth quarter of 2015.

From the sectorial perspective, the country's economic growth has been driven by the expansion of activity in construction and services, despite weak activity in the industry, he said.

From the aggregate demand perspective, economic growth is driven mainly by the expansion of household consumption and private investments, he added.

These trends are expected to surround economic growth even during 2016, with this year's economic growth higher than the 2.6 percent in 2015, but lower than "our previous assessments," the bank said in its latest Monetary Policy Quarterly Report approved by the Supervisory Council on Wednesday.

The expansion of economic activity will be supported by the continuation of the positive trend in consumption and private investments, it said.

Albania's financial environment is characterized by ample liquidity and low interest rates, the bank said.

The country's central bank held that Albania's banking system should be more realistic and bold in its decisions to lend.